Aurelia Butler

In 2020, the World Bank classified Mauritius as a “high-income country” after its annual per capita earnings hit $12,500 — quite something for an island nation which, at independence in 1968, had been a mono-crop sugar producer with average incomes per person of roughly $200.In the half century since, the way Mauritius has diversified its economy and climbed the value chain by moving into textiles, manufacturing, tourism, banking and financial services has been textbook development.But if Mauritius, a functional democracy with a minimum wage and free education and healthcare, has become the closest thing Africa has to an economic miracle, it is one that has been rudely interrupted.As the World Bank was announcing Mauritius’ admission to the high-income club — based on 2019 figures — the island was grappling with its worst crisis since independence.

$12,500

Pre-pandemic annual per capita earnings

For an economy that depends on the free inflow of tourists, goods and capital, the Covid-19 pandemic proved devastating. The economy shrank 15 per cent in 2020. Per capita income collapsed to about $8,600. “For eight months, we were a high-income country,” says Rama Sithanen, a former finance minister. “Now, we have gone back to where we were 10 years ago.”As the pandemic struck, the government adopted what amounted to a zero-Covid policy. That was partly dictated by the 1.3mn population’s high incidence of diabetes and cardiovascular disease — a byproduct of increasing affluence — comorbidities that made Mauritians particularly vulnerable to Covid. The official death toll has been limited to 786.The authorities screened people arriving from China from January 2020. In March, just after the government announced the first three Covid cases, it adopted measures such as sending tourists back to their home countries and severely restricting movement outdoors of its own people.“By July, there was no Covid, but there were also no tourists,” says Azim Currimjee, a managing director at the Currimjee telecoms-to-beverages conglomerate. Arrivals went from an annual 1.4mn to practically zero, as tourism — the island’s biggest employer, accounting for more than 100,000 jobs and at least one-fifth of gross domestic product — tipped into paralysis.Overseas guests have their temperature taken on checking in at a Mauritian resort © Ben Birchall/PAThen, in July 2020, the MV Wakashio, a Japanese bulk carrier, ran aground on a coral reef close to an ecologically sensitive part of the island’s south-eastern shore — although away from big tourist resorts. It leaked an estimated 1,000 tonnes of oil, in what some called the island’s worst environmental disaster. Tens of thousands of people demonstrated in Port Louis, the capital, accusing the government of incompetence.As for efforts to prop up the Covid-stricken economy, the government responded with one of the most ambitious stimulus packages on the continent, including generous wage support. With the help of 80bn rupees from the central bank, it established the Mauritius Investment Corporation (MIC) to lend money to some of the biggest companies in struggling sectors such as tourism. In return, employers were prohibited from laying off staff.“We threw the textbook out of the window,” says Currimjee. “The policy was, first, to make sure we stay alive and, second, to make sure there is no economic damage.”Since October, tourists have returned. The IMF expects growth of 6.7 per cent in 2022, with some private sector economists putting it slightly lower. But government opponents have criticised how emergency funds were distributed. “Lack of transparency has fuelled a lot of suspicion,” says former President Ameenah Gurib-Fakim, who herself lost office over a financial scandal in 2018.“We went on a spending spree and, today, we are facing the consequences of our giveaway,” says Arvin Boolell, a former leader of the opposition Labour party. The central bank, he adds, has lost its credibility through what he deems accounting tricks in creating the funds to give to the MIC.“The adjustment is taking place via the rupee at the expense of the poor,” Boolell says of the central bank’s tolerance of a sliding currency and the resulting imported inflation.Renganaden Padayachy, finance minister, and Harvesh Kumar Seegolam, central bank governor, did not agree to be interviewed for this report. However, the government argues that its extraordinary measures were prudent.

$8,600

Annual per capita earnings after the pandemic hit

It points to the appointment of an outsider — Lord Meghnad Desai, professor emeritus of the London School of Economics — as the first chair of the MIC as evidence of good governance. “As long as the money is spent judiciously and on the main purpose for which it was designed — save the jobs, save the affected companies, give them some breathing space — I am not particularly concerned,” Desai has said.“The fact that Mauritius is a middle-income prosperous country, and well run by and large, will help it ride out the pandemic relatively well,” he added.Mauritius’ longer-term task is to continue its upward trajectory. Pravind Jugnauth, the prime minister re-elected for a second term in late 2019, has set the island’s sights on emulating Singapore, albeit the Asian city state’s GDP per capita is about six times that of Mauritius.Government supporters point to Mauritius’ sophistication as an offshore financial centre — including as a conduit for investment to Africa and India — as evidence that it can continue to move up the value chain.A decision by the intergovernmental Financial Action Task Force (FATF) last year to remove Mauritius from its “grey list” should also alleviate some concerns about the island’s reputation as a secretive tax haven. “There have been a few cases that have hit the headlines,” says Sithanen, now chair in Mauritius of Sanne Group, a UK-listed asset management company, “We sat down with FATF and addressed the deficiencies.”

Financial services aside, officials highlight the completion of infrastructure projects — notably a light railway linking Port Louis with the inland town of Curepipe — and the development of niche high-value-added businesses in medical devices and pharmaceuticals.In addition, they foresee the expansion of education and the so-called blue economy — sustainable use of ocean resources from rare-earth mining to tuna processing. Politicians, meanwhile, say the country should do more to protect and sustainably exploit its exclusive economic zone ranging across 2.3mn square kilometres.Indranarain Ramlall, associate economics professor at the University of Mauritius, argues that the island’s success has been continually to reinvent itself but, recently, it has failed to embrace new industries such as IT and robotics. “We badly need to develop another sector,” he says. “Things are changing fast, so we need to adapt in order to survive.”The writer is the FT’s Africa editor and author of The Growth Delusion: Wealth, Poverty and the Well-Being of Nations (Bloomsbury, 2018) More

Mauritius threw the kitchen sink at the Covid crisis. Now, it has to deal with the broken crockery. When the pandemic struck in early 2020, the government prioritised public health. The decision meant closing off from the world an island economy that is highly dependent on tourism. That left it with no choice but to pump in huge amounts of cash to keep businesses afloat. It did exactly that, spending 28 per cent of gross domestic product according to IMF estimates, comparable with many advanced countries. The Mauritian state supported wages for the employed and self-employed, especially in the devastated tourism and hospitality industries, at a cost of Rs18bn, or $400mn at present rates. A further Rs9bn went to national airline Air Mauritius after it fell into receivership in April 2020. Slimmed to half its previous number of planes, the airline is back up and running. To help pay for all this largesse, the central bank transferred Rs60bn to the government by issuing “instruments” tied to rupee liquidity. It made available Rs80bn from foreign reserves for the Mauritius Investment Corporation, a subsidiary of the bank established in June 2020 to help pump money into struggling companies. In Mauritius’ version of “too big to fail”, Harvesh Seegolam, central bank governor, explained that MIC funds would “assist systemically large, important and viable companies” that would otherwise struggle to meet their debt obligations and risk tipping the banking system into crisis. Harvesh Seegolam, governor of the central bank © Ugo Padovani/ReutersEven with the help of such unorthodox monetary policy — likened to turning the central bank into a “magical money tree” by Rakesh Seesurn, head of risk at Port Louis-based AfrAsia Bank — conventional government spending still pushed the budget deficit in 2020 to 20 per cent of GDP. The economy contracted by 15 per cent that year and grew just 5 per cent in 2021. Unemployment rose from 6.7 per cent in 2019 to 9.2 per cent post-crisis. Last year, the IMF stressed that it was time to rein in what it called “quasi-fiscal activities” in the Mauritian economy. It recommended outlawing further such transfers and said the central bank should relinquish ownership of the MIC, which should be financed through the normal budget. This amounted to a warning that unorthodox policies, if extended, could erode both the central bank’s independence and its credibility. Although stimulus should not be withdrawn too quickly, the IMF said, once the economy had “fully emerged from the pandemic”, fiscal consolidation would be required to stabilise public debt that has risen from 66 per cent of GDP before the crisis to nearly 100 per cent now. Sushil Khushiram, a former minister of financial services, has accused the authorities of populist spending that they cannot afford: “Chickens are now coming home to roost with all the macroeconomic indicators flashing red — unsustainable public debt, widening external deficit, continued rupee depreciation, worsening inflation and weak growth recovery.”Rama Sithanen, a former finance minister for the opposition Labour party, is critical of aspects of the government’s response, though he defends the basic strategy: “We were in a perfect storm, so they put in all the firepower in terms of fiscal policy, financial support, and monetary policy to mitigate the impact on the economy of the pandemic.” He adds that this will now need to be unwound.The government says the stimulus was within its means. “There was so much spare cash in Mauritius that, basically, we mopped it up and put it back in,” says Azim Currimjee, a former vice-president of the Economic Development Board of Mauritius, an investment promotion agency. “Mauritius is a stable country,” adds Ken Poonoosamy, the EDB’s chief executive. “We have probably been one of the few countries that over 30-40 years has had consecutive positive growth. There has never been a contraction in our GDP apart from during Covid.”Still, the government will have to work hard to keep its macroeconomic fundamentals on an even keel. Moody’s has Mauritius’ long-term credit on a below-investment-grade rating of Baa2 with a negative outlook. It has also warned of further deterioration in debt metrics and rising inflationary pressures, a result of a sharply deteriorating rupee: from Rs32.5 to the dollar in March 2020 to Rs44 two years later.But there are signs that, as the economy opens up, Mauritius is clawing its way back to normality. The budget deficit more than halved to 8.6 per cent in 2021. It is expected to fall again to 5.6 per cent this year, says the IMF. Although the current account balance may widen further this year, to minus 15.6 per cent, it is projected to snap back to minus 6.8 per cent next year, as tourist and airline revenues normalise. Exports, including tourism income from hotel beds and airline seats, will benefit from a weaker rupee. A longer term fiscal problem could be looming, though. Mauritius has a median age of 38, comparable with Europe. Its fertility rate of 1.4 is well below the 2.1 needed to keep a population stable. As its workforce ages, plans for a more generous basic pension will bite, increasing government spending on pensions to more than 8 per cent of GDP in 2023/24 against 4.5 per cent of GDP in 2018/19, the IMF calculates.Such problems must be addressed, says Sithanen, through a combination of robust growth and fiscal prudence. “It’s time that we managed our deficit . . . It’s not sustainable.” More

Leaver or remainer — and let’s face it, it’s irrelevant now — it’s hard to dispute that elements of the UK’s departure from the European Union haven’t fared well upon contact with political or business realities. And so it remains. The government is considering a fourth delay to imposing full import checks on products coming from the EU — which were supposed to come into effect on July 1 — the most problematic of which are inspections of food.On the one hand, this would be a pragmatic move when war in Ukraine has stretched supply chains to breaking point. Politically (and sensibly), Downing Street is determined to avoid shortages on shelves or exacerbating the cost of living crisis. But make no mistake: this issue, as they say, is a feature not a bug.Two years ago, the government was insistent that full checks were essential, to keep “our borders safe and secure” and to “ensure we treat all partners equally” in trade. Now, not so much. Concerns about changes are real: past introductions of less intrusive controls came with six to eight weeks of disruption mitigated only by a feather-light touch to enforcement. There may also be a bandwidth issue: “the government isn’t ready for any of this stuff”, is the verdict from one person involved.The backdrop is renewed focus on trade. Chancellor Rishi Sunak this week conceded that the UK’s weak trading performance “might well be” related to Brexit. Where the trade intensity of other countries’ economic output has rebounded after the pandemic, the UK’s has not. What’s really going on isn’t entirely straightforward. Exports have been weak. But goods going to the EU, subject to full checks since January 2021, haven’t underperformed exports to the rest of the world, notes Thomas Sampson at the London School of Economics. Imports from the EU, with less onerous procedures, have suffered more.One possible explanation is, frankly, EU businesses have other options and don’t fancy sucking up the cost and hassle of UK checks. UK exporters currently don’t have a level playing field in terms of trade bureaucracy, nor do they have a big, friction-free market to which to pivot their sales. There is, though, a particular problem in food. Within the headline figures, so-called groupage shipments, bundling together small volumes from different suppliers, have collapsed, says Shane Brennan from the Cold Chain Federation. You can’t impose third-party trade checks, including physical inspections and veterinary certificates, on to an integrated food supply chain without disruption, he argues. It just doesn’t work.As ever when trying to square the Brexit circle, there are no obvious good answers. Some multinationals and port operators, having invested and hired staff, would rather take the pain and get on with it.Others, including it seems the food and agriculture department, want checks in place but see scope to minimise disruption by exempting lower-risk categories from inspection, and dialling down the frequency elsewhere. The question then is whether that amounts to a phased introduction, or a redesign of the UK system on the fly. Others are calling for a longer-term delay. Post-hoc rationalisations — such as Brexit negotiator Lord Frost’s suggestion that the freedom to limit border checks was all part of the plan — should be treated with suspicion.Of course the EU food standards regime is a known and trusted quantity. (The fact that they run such a very tight ship is part of the problem when it comes to the flow of goods from Great Britain to Northern Ireland). But the effective outsourcing of food safety to Europe would be an odd outcome and one that only flies politically until there is any hint of a scandal. Similarly, the idea that border digitisation will alleviate all this in 2025 is, at best, premature. Ditching paper forms, and consolidating processes into a single point of contact, would be a win. But you can’t magic away the need for physical checks on meat and dairy, say. Unless, that is, you strike a deal with the EU on food and hygiene standards, which is a no-no for Brexit hardliners. Or you fundamentally overhaul how we enforce food safety, shifting to a ‘trusted trader’ scheme with officials in-country inspecting and monitoring standards at source. All of which suggests an outcome based on well-known British pastimes and produce: can-kicking or [email protected]@helentbiz More

TOKYO (Reuters) – Japan has little to cheer about a weak yen, which reflects its deteriorating economic fundamentals and trade deficit, the country’s former top currency diplomat Mitsuhiro Furusawa said.But monetary policy is not the right tool to curb yen falls, Furusawa said, brushing aside speculation that recent yen declines might prompt the central bank to raise interest rates.”It’s not good if the value of a country’s currency keeps sliding,” Furusawa told Reuters on Thursday, describing the weak-yen trend as reflecting Japan’s waning competitiveness.”Responding to a weak yen with monetary policy isn’t right,” he said, adding that the Bank of Japan will keep interest rates ultra-low to ensure inflation sustainably hits its 2% target.Furusawa oversaw Japan’s currency policy in 2013-2014, when BOJ Governor Haruhiko Kuroda’s “bazooka” stimulus pushed down the yen and bolstered shares. His remarks point to changes in how Tokyo policymakers see a weak yen – once welcomed as giving Japan’s export-reliant economy a boost.The yen’s real, effective exchange rate – an indicator that captures the international competitiveness of a currency – has slid to less than half the peak level of 150 hit in 1995.The Japanese currency has lost around 8% against the dollar in March, dropping to a six-year low below 125 on Monday.Some market players see 125 yen to the dollar as a level that raises alarm among Japanese authorities, as a previous drop to that level triggered verbal warnings by BOJ’s Kuroda.But Furusawa said the speed of yen moves, rather than the currency’s level, were more important for policymakers in deciding whether to intervene in the market.The dollar’s spike to 125 yen on Monday was “quite big,” which is why incumbent currency diplomat Masato Kanda toned up his warning the following day, Furusawa said.”It’s meaningless to set a certain line-in-the-sand for currency levels,” said Furusawa, who retains close contact with overseas and incumbent Japanese policymakers.After his stint at Japan’s finance minister, Furusawa served as deputy managing director of the International Monetary Fund until 2021. He is currently president of the Institute for Global Financial Affairs at Japan’s megabank SMBC. More

Treasurer Josh Frydenberg named Michele Bullock as Deputy Governor of the Reserve Bank of Australia (RBA), elevating her from her current position of Assistant Governor responsible for financial stability. Bullock starts her five-year term immediately following the surprise resignation of former Deputy Governor Guy Debelle in early March. Debelle left to join a green energy group founded by Australia’s richest man, billionaire miner Andrew Forrest. Bullock joined the central bank straight out of university in 1985 and has served in the economic and international units, business services and currency departments.In her new role, she will sit on the nine-member policy making Board of the RBA which sets interest rates. The next monthly meeting is due on April 5 when analysts assume rates will be kept at a record low of 0.1%.RBA Governor Philip Lowe has said it was plausible a hike could come later this year as the economy is growing strongly and inflation is accelerating sharply.Lowe’s (NYSE:LOW) seven-year term as governor ends next year and he has said he would be happy to take a second term if the government offers it. More

WASHINGTON (Reuters) -U.S. Trade Representative Katherine Tai on Thursday declined to say if Taiwan would be invited to join the Biden administration’s Indo-Pacific economic plan, spurring Senate criticism that excluding the island would be a missed opportunity.Taiwan has voiced its desire to be a “full member” in the forthcoming Indo-Pacific Economic Framework (IPEF), one part of the administration’s effort to counter what it says is Beijing’s increasing economic and military coercion in the region.The administration says the still fledgling IPEF aims to be inclusive, but it has not publicly detailed any membership plans. IPEF is intended as a flexible economic framework that would align members on supply chain security, infrastructure, labor standards, clean energy and other issues.Tai, testifying before the Senate Finance Committee, called Taiwan an essential partner, but that no decisions had been made on membership. “On the point of Taiwan, we are in general in conversations with those who are interested in joining this framework,” Tai said when asked by Senator Bob Menendez if the island would be invited to join the framework.”Participation in the IPEF is still under consideration, and as far as I’m aware no decisions have been made,” said Tai, the U.S.-born daughter of immigrants from Taiwan.Menendez responded that the democratically governed island claimed by China was a key strategic and trading partner intertwined with U.S. economic security.”I get a sense from that answer that we will not include Taiwan within the IPEF, which is missing an opportunity,” he said.The exchange followed a March 30 letter from 200 members of Congress from both parties, including Republicans Michael McCaul, Liz Cheney, and Elise Stefanik, and Democrats Ted Lieu, Ro Khanna, and Elissa Slotkin, urging Tai and U.S. Secretary of Commerce Gina Raimondo to invite Taiwan to join IPEF.”Taiwan’s inclusion would also send a clear signal that the United States stands with its allies and partners, and will not be bullied by the PRC,” the representatives said, referring to the People’s Republic of China. The letter https://sires.house.gov/sites/sires.house.gov/files/documents/Taiwan%20IPEF%20Final.pdf was posted on the official Congress website of Democratic Congressman Albio Sires, who also signed it. Some analysts argue Taiwan’s participation in the plan could make countries in the region hesitant to join for fear of angering Beijing, which opposes the idea as a tool for Washington to try to contain China’s rise. Raimondo told members of the Senate Finance Committee last week that the administration was not contemplating Taiwan’s inclusion at this time, according to two sources with knowledge of the closed-door meeting where she made the remark.”I think it speaks to a broader issue that our trade agenda is sometimes just out of whack with our foreign policy agenda,” one of the sources said.The Commerce Department referred a Reuters request for comment to the White House National Security Council, which also said no decisions had been made on membership. Taiwan’s de-facto embassy in Washington declined to comment on Raimondo’s remark, but a spokesman said: “Regarding IPEF, Taiwan continues to exchange views with the U.S. through existing economic and trade mechanisms and channels.”Though it doesn’t have formal ties with Washington, Taiwan is one of Asia’s most vibrant democracies and economies, and is a dominant producer of semiconductors crucial to global supply chains. More